What are government bonds?
Bonds issued by central or various state governments of India are called government bonds. Their maturity ranges from less than 1 (T-bills) to 40 years (G-secs). Bonds issued by the state governments are called state development loans.
The G-sec market in India initially consisted of only large institutional investors. The government and RBI are making efforts to increase the participation of smaller entities like cooperative banks and individual investors through various legal and technological developments.
 
Government bonds are available in several variants which cater to different investment requirements like variable and fixed-rate bonds, sovereign gold bonds, and inflation-indexed bonds. 
Is investing in government bonds a good idea?
Government bonds are issued by the government to raise funds for its spending activities. Since they consist of the sovereign’s commitment, they offer maximum safety. Investing in government bonds in India is an excellent option for risk-averse investors. They are inelastic to market volatility and are great instruments for portfolio diversification. 
The government has undertaken several efforts to make investing in government bonds more seamless and increase the subscription of individual investors. For instance, non-competitive bidding was launched to facilitate bidding by retail investors. Similarly, the RBI Retail Direct Scheme has come into existence to attract more retail investors. 
Fixed deposits are losing their attractiveness for their low-interest rates, stock investments are highly risky, and gold has problems relating to custody, valuation, and purity. On the other hand, government bonds are gaining popularity due to various reasons discussed below.
5 Benefits of Investing in government bonds
Investing in government bonds has the following advantages
1. Low risks and assured returns due to sovereign guarantee. As the government is the issuer of government bonds, they are considered to offer maximum safety.
2. Certain variants of government bonds like Capital indexed bonds and Inflation-indexed bonds offer a way to hedge against inflation. While the principal amount in capital-indexed bonds is inflation-protected, both coupon flows and the principal are inflation-protected with inflation-indexed bonds. Hence, government bonds offer protection against capital loss due to inflation.
3. Government bonds can be traded in the secondary market. Hence, they are liquid instruments.
4. They can be held in Demat form and bought/sold online. Trading of a government bond is done through an efficient delivery system that functions on a delivery versus payment mechanism.
5. They are a great source of earning regular and assured income. Coupon payments on government bonds are disbursed every six months. 
